Technical Debt

A hybrid form of financing that sits between senior debt and equity in the capital structure, typically unsecured or subordinated to senior lenders. Mezzanine debt carries higher interest rates than senior debt (often 12-20%) and frequently includes equity kickers such as warrants or conversion rights.

Debt that holds the highest priority claim on specified collateral in the event of default or liquidation, ranking ahead of unsecured and subordinated obligations. Senior secured lenders benefit from security interests over identified assets such as property, equipment, receivables, or intellectual property.

Debt that ranks below senior obligations in priority of repayment in the event of the borrower's liquidation or default. Subordinated debt holders are repaid only after senior secured and senior unsecured creditors have been satisfied in full.

A form of debt financing available to venture-backed startups that supplements equity financing without requiring the dilution of additional equity rounds. Venture debt is typically structured as term loans with warrants giving the lender the right to purchase equity, and is used to extend runway, finance equipment, or bridge between funding rounds.

A hybrid lending structure that combines senior and subordinated debt into a single facility with a single blended interest rate, simplifying the capital structure and reducing negotiation complexity. Unitranche facilities are provided by a single lender or lending group and eliminate the need for separate intercreditor agreements between senior and mezzanine lenders.

A decline in the expected rate of return on an asset class or investment, typically driven by increased demand, lower interest rates, or excess capital supply. Yield compression in private markets can inflate the implied valuations of intangible-heavy businesses, requiring investors to scrutinise whether premium multiples are supported by genuine intangible asset quality.

The estimated cost to create an exact replica of an intangible asset as of the valuation date, using the same materials, standards, design, and technology that were originally employed. Cost of reproduction is one of two cost approach premises (alongside cost of replacement) and produces a higher value estimate because it includes costs associated with features that may no longer be necessary or efficient.

A form of asset value decline that can be economically remedied through repair, upgrade, or redesign at a cost that is less than the resulting increase in value. In the context of intangible assets, curable depreciation might apply to software requiring modernisation or a brand needing repositioning.

How should companies account for AI infrastructure investments?

AI infrastructure investments — including GPU clusters, MLOps platforms, and data pipelines — are accounted for as either tangible assets (hardware), intangible assets (software platforms), or operating expenses depending on their nature and usefu...

What does it mean to be transparent about technology debt?

Technology debt—quick hacks, legacy code, unscaled infrastructure—should be acknowledged and itemized. Hiding it until post-acquisition acquisition is fraud.

How can an accountant help a client access IP finance?

An accountant readies the client for IP finance by proving clean title, commissioning an independent IP audit and valuation, and assembling the historical and forecast financials lenders need to underwrite the loan.